The diagram below shows the marginal costs of pollution abatement for two firms,Firm 1 and Firm 2.
FIGURE 17- 5
-Refer to Figure 17- 5.If the government requires each firm to abate Q3 units of pollution,the social costs of this abatement

Question

The diagram below shows the marginal costs of pollution abatement for two firms,Firm 1 and Firm 2.
  FIGURE 17- 5
-Refer to Figure 17- 5.If the government requires each firm to abate Q3 units of pollution,the social costs of this abatement

Quizplus · Accepted Answer

According to the graph, Firm 1 has a lower marginal cost of abatement than Firm 2 at the same level of abatement. Therefore, it makes sense to require Firm 1 to increase its abatement and Firm 2 to decrease its abatement by the same amount to minimize social costs. This would result in both firms abating pollution up to Q3 units, but Firm 1 would be doing more of the abatement than Firm 2. Any further reduction in pollution levels would increase the social costs.

The Diagram Below Shows the Marginal Costs of Pollution Abatement